TY - JOUR
AU - Scheuer,Florian
TI - Optimal Asset Taxes in Financial Markets with Aggregate Uncertainty
JF - National Bureau of Economic Research Working Paper Series
VL - No. 17817
PY - 2012
Y2 - February 2012
DO - 10.3386/w17817
UR - http://www.nber.org/papers/w17817
L1 - http://www.nber.org/papers/w17817.pdf
N1 - Author contact info:
Florian Scheuer
Department of Economics
Stanford University
579 Serra Mall
Stanford, CA 94305
Tel: 650/725-3987
E-Mail: scheuer@stanford.edu
AB - This paper studies Pareto-optimal risk-sharing arrangements in a private information economy with aggregate uncertainty and ex ante heterogeneous agents. I show how to implement Pareto-optima as equilibria when agents can trade claims to consumption contingent on aggregate shocks in financial markets. The first result is that if aggregate and idiosyncratic shocks are independent, the implementation of optimal allocations does not require any interventions in financial markets. This result can be extended to dynamic settings in the sense that, in this case, only savings need to be distorted, but not trades in financial markets. Second, I characterize optimal trading distortions in financial markets when aggregate and idiosyncratic shocks are not independent. In this case, optimal asset taxes must be higher for those securities that pay out in aggregate states in which consumption is more volatile. For instance, this can provide an efficiency justification for the frequently observed differential tax treatment of different asset classes, such as debt and equity claims.
ER -